LatAm Banks: Not that bad… yet

With the financial sector now at the center of market turmoil as concerns of a potential credit crunch intensify, we take a look at how LatAm banks are doing in terms of loan portfolio quality. We go over the Non-Performing Loans (NPLs) of some of the large listed banks in Brazil, Chile and Mexico with updated numbers as of 4Q15.

We observed that for our sample the average NPLs as a % of total loan portfolio (NPL ratio) remains at an adequate level and actually decreased during 2014-2015, ranging from 2.93% in 1Q14 to 2.75% in 4Q15. However, we see mixed trends across countries , with a clear worsening tendency in Brazil and improving quality in Mexico and Chile.

Our Sample:  In Brazil: Bradesco (BBO), Santander Brasil (BSBR) and Itaú (ITUB). In Mexico: Banorte (GFNORTE), Santander Mexico (BSMX), Inbursa (GFINBUR) and BanRegio (GFREGIO). And in Chile: Santander Chile (BSAC) and Banco de Chile (BCH).

BRAZIL. Highest NPLs with an uptrend. Although we still see a moderate NPL ratio level below 4.5%, our Brazil sample shows the highest NPL ratio vs peers and a clear uptrend starting betwen 4Q14 and 1Q15. Bradesco shows the highest NPL ratio as of 4Q15 of 4.1% up 30 bps QoQ.  Itaú’s NPL ratio is the 2nd highest at 3.5% (4Q15) and is 50 bps up from its 2-year low in 1Q15. Santander shows a relative constant NPL ratio of 3.2%, unchanged in the last 3 quarters.

MEXICO: Mixed NPLs, but all declining. We have a heterogeneous mix as of 4Q15 with NPL ratios ranging from 3.3% and 3.1% in Santander and Inbursa, to Banorte’s 2.2%. BanRegio appears at the lower end with 1.6%. The constant for Mexican Banks: declining NPLs in the 4Q15.

CHILE: Stable NPLs. Both Banco de Chile and Santander show NPL ratio stability within the 2-year period  of  around 1.2% and 2.5%, respectively.


Coverage Ratio seems ok. Following the increase in NPL ratios for Brazilian banks, we observe a higher increase in Loan Loss Allowances, leading to a higher but adequate (for the moment) coverage ratio around 200%. The further increase in the coverage ratio for Brazilian banks signals, in our view,  the clear expectation of higher loan portfolio deterioration ahead. As for Mexican and Chilean Banks, we also see an increase in coverage ratio, aided by lower-constant NPLs.


Brazilian delinquencies will be something to keep on watching. During 4Q15, we saw different trends for our Brazilian banks sample in terms of delinquencies between 15 and 90 days; the highest concerns came from Santander Brasil, for which delinquencies spiked 70 bps QoQ to 5.0%. This opposed to Bradesco’s stable 4.1% and Itaú’s 2.6% delinquencies, the latter declining 40 bps QoQ.



LATAMPM´s take: Although NPLs remain at moderate levels within our LatAm banks simple, we believe the rising NPLs trend will continue in Brazilian Banks; as for Mexico and Chile, we expect stabilization of NPL ratios at current levels in the short term. As a result of the quality deterioration in Brazil, we expect a limited loan portfolio expansion and even a contraction as lending criteria becomes stricter–this in addition to a softer demand environment. It is also worth noticing that the pace of portfolio deterioration in Brazil could spike as economic conditions worsen.


Source: LATAMPM with Company reports.




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